Beige Book: National Summary
June 30, 1981
According to this month's district reports, economic activity in the nation remains mixed. Agriculture probably offers the most consistent observations, with most districts indicating bright prospects for crop yields and farm prices later in 1981. The construction industry is in the doldrums for the most part, with residential building still not showing any real life, and commercial construction beginning to lose its momentum. Manufacturing remains soft in many areas, but reports from Minneapolis and Dallas hold some hope for the industrial sector. Factory inventories are generally in good shape. Retail trade is one of the brightest spots on the economic horizon at this time, with sales running well ahead of the June 1980 levels in most districts, and ahead of most projections as well. Auto sales remain a blemish, though. Financial institutions continue to show very little, if any, loan growth and are experiencing deposit flow problems as well.
Agriculture
The prospects for agriculture have brightened somewhat
across the nation. Excessive rains in parts of the Midwest have
subsided, and although plantings of corn, cotton, and soybeans are
behind schedule, normal yields are projected. Other parts of the
nation, suffering from drought conditions earlier this year, also
got some relief in recent weeks, improving the outlook for farmers
in those areas too. In particular, a record crop of winter wheat is
forecast, despite previous frost and drought damage. Farm prices are
generally depressed at this time. Some recent strengthening has been
noted in Atlanta, though, and is expected in most other districts as
well.
Construction
Every district reporting on residential construction
tells the same story in July-very little activity, owing primarily
to high mortgage rates. Creative financing appears to be offering
very little help to the sagging homebuilding industry, with many
institutions offering VRMs, GPMs, VMMs, etc., but few potential
homebuyers accepting the new instruments.
Commercial construction is generally stronger than residential, but it too has started to show some signs of tailing off. Commercial building continues to move at a good clip in Atlanta, Minneapolis, and Dallas, but has started to soften in Chicago, St. Louis, and San Francisco. High rates are said to be responsible in part for the dropback. Many of the projects already in progress when credit conditions were initially tightened are now reaching completion but are not being replaced with new ones, as developers are scared off by high financing charges and economic uncertainty.
Manufacturing
Industrial activity is mixed in July. While
Minneapolis and Dallas report improvement in the manufacturing
sector, some production cutbacks are reported in Boston and Chicago.
New York, Philadelphia, Atlanta, and St. Louis all indicate little
or no change in factory activity in those areas. Both Boston and New
York say there has been little interest on the part of manufacturers
to increase plant and equipment outlays. Manufacturers' inventories
are generally "in line" to "a little tight," except in St. Louis
where some curtailment of production is planned to reduce excessive
stock levels.
Retail Trade
Consumer spending on general merchandise is reported
to be quite strong in most districts, with sales outpacing both
year-ago levels and expectations as well. The exceptions are in St.
Louis, where sales are up in nominal terms but flat after adjusting
for inflation, and in San Francisco where "a rather widespread and
substantial weakening in consumer spending" is noted. Part of the
unexpected strength is a result of heavy promotions, mentioned in a
number of district reports. Growing consumer confidence, as
evidenced by a pickup in recent credit sales, and the anticipation
of a tax cut are also cited as explanatory factors, however. As for
the future, most retailers are projecting a strong finish for 1981,
with perhaps only a temporary slackening in the third quarter.
Auto sales are almost universally very, very soft. Sales in many districts are only slightly ahead of last year's depressed levels, remaining well below the prosperous volume of 1978.
Finance
Loan demand is variously described as "flat," "sluggish,"
and "weak" across the country, as both consumers and businessmen
appear to have trimmed borrowing to the bone. The prime rate ranges
from 19 1/2 to 20 1/2 percent. Bankers have tried to bolster
borrowing with a variety of floating rate schemes, as noted by New
York, but apparently without much success.
Deposit flow problems are mentioned in a number of reports and seem to be especially acute in the Twelfth District where there has been an increased call for legislative action allowing thrifts and banks to more effectively compete with money market funds.
Services
A fair amount of strength in the services related to
tourism is implied in the district reports from Atlanta, Chicago,
St. Louis and Minneapolis. Summer tourist trade is picking up in
those areas, aided by adequate gasoline supplies and some recent
softening in gasoline prices, and has been giving tourist-related
retail sales a boost. An exception is noted by Atlanta. In South
Florida, the usual wave of foreign tourists has been checked a bit
by recessionary conditions in Europe, a stronger American dollar,
and some political unrest in nearby Central America.